For economic recovery consumption and investment must take-the-wheel
Govt's share of economy small, must take the back seat
In order not to waste the COVID-19 crisis, an economic plan to stimulate the Nigerian economy and quickly exit the slump it is in must go beyond more government-led expenditure.
To attain a V-shaped recovery, that is shorten the length of the recession, Nigeria needs an economic plan that gives private consumption and capital investment more space. Both accounted for 73.48 percent and 26.20 percent of GDP respectively in 2019. Both are fundamental to economic growth in Nigeria. In contrast, since 2014, average government expenditure as a percentage of total output has been 11.85 percent.
A deeper look at available data further revealed that after reaching an all-time high of 81.5 percent of GDP in 2016, private consumption as a percentage of GDP has declined consistently, falling to its lowest level in 5 years in 2019. Although the share of capital investment peaked in the last two years, foreign direct investment has remained very low at 0.4 percent of GDP as of December 2019. It increased in Q1’20, but may slow due to COVID-19 pandemic.
In a country where the owner’s corner is a serious matter, the government should take the back seat and let the private consumption and capital investment drive the economy.
If the aim is to turn the current economic challenges into an opportunity for Nigerians, especially the “common man”, this is a fact the Economic Sustainable Committee, headed by Vice President Yemi Osinbajo, can’t afford to ignore. It is important in shaping a sustainable plan which President Buhari has asked for.
Beyond the health crisis the COVID-19 pandemic has brought upon countries across the world, it has also caused disruption in supply chains, depressing global and domestic demand for commodities. Nigeria has not been spared. Crude oil prices have plummeted, oil production cut and it costs more to produce a barrel of oil than to sell it. It has unleashed a fiscal crisis.
However, among the more devastating effects of the pandemic is the economic hardship brought upon businesses and households. The survival of businesses especially in the informal sector is severely threatened while those in the formal sector have been forced to cut cost resulting to many employees losing their jobs, while some others have seen salaries cuts between 30 to 50 percent; further lowering households’ disposable income and purchasing power.
To this end, the Nigerian federal government will be making a grave mistake if its plan for spurring economic growth and development across 2023 is focused on federal government expenditure. Basic macroeconomics explains a country’s GDP expenditure decomposition to include private consumption (C), investment (I), government expenditure (G), net export (X-M).
The outlook for 2020 is bleak. The decline in household consumption is expected to slow economic growth. The question therefore should be how do we put money in the hands of consumers and how do we stimulate foreign direct investment. This should form the crux of the economy sustainability committee’s plan for growth.
Policies, reforms and actions that induce job creation across sectors, boost productivity, improve competition and attract patient foreign capital are strategies to attain desired sustainability goal.
Shifting focus from these fundamentals will yield a plan dead on arrival like previous plans we have had over the years which have stifled rather than stimulate economic growth.
More importantly, there must be political will to act. A plan remains a mere plan except effectively executed. Over the years we have had plans and intended reforms in different forms which remained a mirage or worse still made to look like rocket science because of the absence of political will to act.
This is a call to the federal government not to waste current crisis by focusing resources and energy on less important things. One way to ensure this is by consulting far and wide and beyond government officials – the private sector has a stake in the economy too. A plan, take Vision 2010, is as good as the quality of experiences and ideas that contribute to it.